10 september 2020
16:30
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The corona crisis slowed down Dexia’s balance sheet. But Pierre Crevits, the new CEO of the residual bank, does not panic. “The problem is not structural,” he says in the first interview since his appointment in May.
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Since the implosion of Dexia in 2012, the Belgian-French financial giant has had one core task: to dismantle the group as quickly and orderly as possible. But the corona crisis in the first half of the year put a brake on the reduction of the balance sheet. On June 30, the Dexia Group’s consolidated balance sheet total amounted to 121.2 billion euros, significantly less than a year earlier (134.6 billion), but slightly more than at the end of 2019 (120.3 billion).
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The increase in the balance sheet total in the first half of the year is purely technical in nature, assures CEO Pierre Crevits. This can mainly be explained by the fall in interest rates as a result of the corona crisis. This low interest rate forced Dexia to revalue the assets on its balance sheet. In addition, the group felt obliged to set aside more cash to absorb any problems with risky derivatives in the portfolio.
“That neutralized the impact of asset sales and the natural depreciation of the trading portfolios,” says Crevits.
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He also immediately underlines that the run-down of those bond and loan portfolios is still ‘on track’. ‘In the middle of last year, we said that we wanted to reduce those portfolios by 16 billion by the end of 2021. With 15 months to go, we are already at 10 billion. ‘
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Local authorities
Crevits does not think Dexia will face massive defaults from local authorities, as has been the case in the United States in recent years. Is that not likely to happen in Europe – and even more so because of the corona crisis? ‘I do not think so. We have received some inquiries in Italy and France for longer payment terms, but our loan portfolio is solid, ”says Crevits.
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The Brexit negotiations are being followed with suspicion at Dexia – which has an exposure of 22 billion in the United Kingdom. ‘But we don’t panic. The composition of our UK portfolio – financing local government projects – protects us. Even if a hard Brexit wouldn’t be good news. ‘
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Italy
After years of unbridled expansion and the subsequent implosion, the residual bank Dexia withdrew to a handful of countries in recent years. The only foreign subsidiary of any size, outside the French and Belgian home markets, is the Italian Crediop.
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The orderly phasing out of Dexia is a must, because the group hangs like a sword of Damocles above the Belgian and French taxpayers.
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Until the end of last year, Dexia owned 70 percent of Crediop. The rest was with two local Italian banks. As long as they were on board, the residual bank was not free to sell (assets of) its Italian subsidiary or to wind down the activities in Italy.
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At the end of last year, Dexia – with the blessing of the regulators and of Europe – was the only one to subscribe to a capital increase of EUR 120 million at Crediop. In this way, it obtained 99.57 percent of the shares. On Tuesday it acquired the remaining shares, according to the half-year results of the residual bank.
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He will now look at the strategic options for Crediop. The exercise could lead to the sale of the Italian subsidiary, of (part of) its portfolio or – as has already happened with the American activities – a repatriation of the activities to Paris and Brussels. ‘The phasing out will take about two years,’ says Crevits. If the residual bank loses Crediop, this could shrink the balance sheet by 5 billion euros in one fell swoop. Returning activities to the ‘home market’ can also generate significant savings, including administrative savings.
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Phasing out
The orderly phasing out of Dexia is a must, because the group hangs like a sword of Damocles above the Belgian and French taxpayers. Since the financial crisis erupted in 2008, the residual bank can only work with the guarantees of the Belgian and French governments.
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Under the motto ‘you have to repair the roof when the sun shines’, Crevits’ predecessor Wouter Devriendt has made full use of the favorable market conditions over the past three years to accelerate the reduction of Dexia’s enormous balance sheet. At the end of 2016, Dexia still had a balance of EUR 213 billion. At the end of last year that had been reduced to 120 billion, so at the end of June 121 billion.
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